And the brokers still don't get it...

Derivative Trades Jump 27% to Record $681 Trillion (Update1) By Hamish Risk
<!-- WARNING: #foreach: $wnstory.ATTS: null at /bb/data/web/templates/webmacro_en/newsarchive.wm:265.2 --> <!-- WARNING: #foreach: $wnstory.ATTS: null at /bb/data/web/templates/webmacro_en/newsarchive.wm:279.19 --> Dec. 10 (Bloomberg) -- Derivatives traded on exchanges surged 27 percent to a record $681 trillion in the third quarter, the biggest increase in three years, the Bank for International Settlements said.
Interest-rate futures, contracts designed to speculate on or hedge against moves in borrowing rates, led the increase with a 31 percent increase to $594 trillion during the three months ended Sept. 30, the Basel, Switzerland-based BIS said today in its quarterly review. The amounts are based on the notional amount underlying the contracts.
Trading surged as investors bet on losses linked to record U.S. mortgage foreclosures and policy changes by the Federal Reserve and the European Central Bank to offset the credit slump. The Fed cut its benchmark interest rate by half a point to 4.75 percent in September, the central bank's first reduction in four years.
"The turbulence in financial markets led to the busiest trading on record,'' BIS analysts Ryan Stever, Christian Upper and Goetz von Peter wrote in the report.
Trading in stock index futures and options rose 19 percent to a record $81 trillion in the third quarter, as investors speculated on whether the credit-market losses would spread to the equity markets.
The Standard & Poor's 500 index rose 1.74 percent in the three months to Sept. 30. The Dow Jones Stoxx 600 Index in Europe fell 3 percent in the same period.
"Equity investors are using derivatives more aggressively as they have come to understand the more sophisticated instruments over time,'' said Jim Josephson, head of derivatives flow trading at Bear Stearns Cos. in London. Currency Swings
Swings in currencies increased as the turmoil in the U.S. subprime mortgage market prompted investors to dump high- yielding assets financed through low-interest currencies such as the yen and Swiss franc. Volatility among the seven most-traded currencies surged almost 24 percent in August, the most since December 1996, a JPMorgan Chase & Co. index shows.
Trading in currency futures and options increased 18 percent to $6.4 trillion, the BIS said.
"2007 was always going to be a busy year for derivatives but when something comes along that requires action, as in the third quarter, it turns into an incredibly busy year,'' said Josephson said.
A derivative is a financial obligation whose value is derived from interest rates, the outcome of specific events or the price of underlying assets such as debt, equities and commodities. Companies and investors use them to hedge against, or speculate on, price changes.
Derivatives include futures, which are agreements to buy or sell assets at a set date and price, and options, which are the right but not the obligation to do so.
Investors may have shifted some trading to exchanges from the over-the-counter market to reduce the risk of counterparties defaulting on deals, the BIS said.
The BIS, formed in 1930, monitors financial markets and regulates banks.
To contact the reporter on this story: Hamish Risk in London hrisk@bloomberg.net